The impact of divorce on female finances

(Written by Elena Kale on behalf of Birchwood Investment Management Ltd) 

In 2012 the number of marriages that ended in divorce was stated as 42%.  In the years since, the rate has dropped annually to its lowest rate since 1973, however, this is partly due to the fact that more couples are choosing not to marry. 

Although the “lifetime divorce risk” is now around 35%* with just under 250,000 weddings taking place a year (from 2016 statistics**), this still accounts for a potential 87,500 of those couples facing the divorce courts, without taking into consideration those couples entering into civil partnerships. With the average marriage lasting 12 years, those of us in our 40’s, through to those in their 60’s, are likely to be taking these tough decisions.   It is safe to say, that as we live longer, we increasingly refuse to sit back with our feet up and settle for an unhappy or unfulfilling quiet life; the “silver separation” being on the increase. 

One must equally recognise though that the highest divorce rates for women are aged 25-29 and for men exactly the same, though that changes slightly to 30-34 if between the fourth and eight anniversaries (recent study over the last five years ***) 

But although many women may be instigating separation, what does divorce really mean for them financially? Initially research has shown that women see a general drop in household income, even with maintenance payments, as they tend to be the primary carers where children are involved.

Divorce makes men, particularly fathers, around one third better off, while the average women’s penalty is losing at least a fifth, and this trend is generally maintained for years. 

An aspect of this responsibility comes from the fact that according to the Institute for Family Studies, based on a period between 1990 and 1994, 70% of women were married at the time of the birth of their first child, and while this dropped to 55% 10 years later, similar figures were still demonstrated with pregnancies happening outside of marriage****. 

This carries huge implications for women being unable to work and earn like their male counterparts, sacrificing time, energy and youthfulness for the family infrastructure; foregoing freedom to gain independent financial security through undeveloped careers and businesses should they end up separated, divorced or widowed.  This may then force them  to be self-sustaining for themselves and any dependents that often include not just children, but the infirm (in a caring role), elderly and often “blended” family members who may not be directly blood related, but are still extended associated family dependents. 

An article published at the turn of the millennium, “The Effect of Marriage and Divorce on Women’s Economic Well-Being” put together by Pamela J Smock, Wendy D Manning and Sanjiv Gupta, published in their “Sociological Review” pronounced that “The average divorced woman has less money than the average married woman, and women don’t completely recover from the financial consequences of divorce until they remarry”. Never a good reason to believe tying the knot again should hinge on this simple observation. 

But much has changed in twenty years. We can embrace two important phrases here, “personal freedom”, and “taking control”. 

There are innumerable cases of women finding greater happiness and freedom on many levels, opportunities may present themselves to start businesses, work in many interesting, practical and new ways, but also to examine the assets women already have access to, and recognise the need to structure them towards a financially secure future. 

Thorough investigation must be made in terms of “rights” in divorce, both for husband and wife, which have evolved. Nowadays, it starts at 50:50 and then negotiations begin, usually with the help of mediators, the use of which will assist in achieving final approval from the courts.  Information provided by friends/family can often be false from skewed beliefs that divorce deals are in favour of the women’s benefits – not necessarily.  A fair and knowledgeable solicitor is a necessity and one that women feel will work on their behalf to fully support them*****. 

There are several “nasty” surprises that catch women out: 

·        The accrued size of debts they are aligned to legally.

·        Needing to return to work.

·        Maintenance payments being insufficient to needs.

·        Assuming the marital home will be theirs.

·        The loss or reduction of future Pension savings.

·        The need for increased insurance/protection.

·        The cost of the divorce itself.

 It’s well documented that men tend to save more towards their pension than women, mainly due to the gender pay gap, career breaks that women have taken to raise children or care for elderly relatives and those who return to work part time.  When assets are pooled together there may be a case for using equity in the marital home against pension savings, meaning women may keep or retain a larger portion of the house, but relinquish or reduce future rights from their husband’s pension.

For many women, this may seem the most appropriate solution in order to keep the security of their homes, however it does mean that dependent upon age, a significant sum needs to be saved towards rebuilding those pension pots, in order to maintain a comfortable standard of living. Extra life insurance may also be demanded, especially if young children are involved, as well as independent health insurance, income protection and critical illness policies that may before have been held jointly.   

Independent financial advice can open many doors of opportunities to services and options that have never been considered. It’s also highly valuable to seek advice if the divorce proceedings are being initiated or in motion. You are entitled to many things, and you are entitled to know what they are, and feel released enough to claim them. All that’s listed above can be discussed and options presented so the impact is not only lessened but manageable******.

Finally, and purposefully, put things in place now, so you’re prepared, armed and ready. Consult with the right people, and structure a strategy ready to take you through what will be a difficult time, whilst trying to reach an outcome maximised for your benefit.

*https://marriagefoundation.org.uk/back-to-1969-lifetime-divorce-risk-is-now-35-per-cent/

**https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/marriagecohabitationandcivilpartnerships/bulletins/marriagesinenglandandwalesprovisional/2016

***https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5992251/

****https://ifstudies.org/blog/effects-becoming-single-mother/

*****https://www.theguardian.com/lifeandstyle/2009/jan/25/divorce-women-research

******https://www.nextavenue.org/financial-surprises-divorcing-women/

Birchwood Investment Management Ltd is authorised and regulated by the Financial Conduct Authority.